Lord Myners tells the Co-operative Group to scrap its board to survive as he pours scorn on 'elected democrats'

The Co-operative Group must take radical decisions if it is to survive, former City minister Lord Myners said today as he published a report into the governance at the loss-making mutual - but also admitted he was 'less confident' the group will follow his advice.

Lord Myners is set to present his proposals to the Co-op AGM on 17 May, but he fears that the group's board, and many on the regional boards 'still stuck in denial' over the group's failings, will be reluctant to adopt the suggestions.

These include the abolition of the group's 21-member board to be replaced by a smaller number of directors with greater commercial competence, the right for all ordinary members to elect the board, and the establishment of a National Membership Council and a nominations committee.

Recommendations: Lord Myners said the group should appoint directors with greater commercial competence

Lord Myners said: ‘Radical decisions on governance structure need to be taken very soon - and with resolution - if the Co-op, as my mother knew it, is to be saved.

‘The decision lies in the hands of the elected democrats. I have done all I can do.’

The recommendation may not be welcomed by traditionalists on the board, who fear changes to the way the group is run represent a 'PLC-style' takeover, betraying its co-operative principles.

The suggestions follow hard on the heels of a damning review by senior civil servant Sir Christopher Kelly into the near-collapse of the Co-op's banking arm.

Kelly blamed the group’s board for failing to act as a responsible steward of the bank, and said the absence of any individuals on the board with previous senior-level experience of working in a bank is in ‘stark contrast’ to Tesco and Sainsbury, which also have banking operations.

The bank, which last month posted £2.5billion loss, faced near-collapse last year after the discovery of a £1.5billion hole in its balance sheet, and had to be rescued by bondholders in a move that saw the group's stake reduced from 100 per cent to 30 per cent.

Lord Myners, who recently resigned as a director after just four months, said that the 15 lay directors on the current board were drawn from a total eligible pool of only 35 regional board members. They include an engineer, a plasterer and a retired deputy head teacher.

He said that apart from the lack of relevant skills and experience, 'this has not even been genuine democracy at work'.

Need for change: The Co-op bank last month posted £2.5billion loss

The former chairman of Marks & Spencer said: ‘I have no doubt that the Co-operative Group can over the next five years reverse a decline that started over 50 years ago. But I am less confident that it will choose to do so.

‘Much will depend on the small number of "elected democrats", less than one in 10,000 of the group's entire membership.

‘Will they put their self-interest to one side for the greater good, acknowledging the collective failure of the current board and the crippling deficiencies of the entire governance system?’

‘I would say that the group board and many on the regional boards are still stuck in denial over this near ruinous failure of governance, whereas the vast majority of ordinary members feel justified anger.’

Lord Myners said the resistance from traditionalists reflected a culture of entitlement within a small but highly active proportion of the membership.

He added: ‘This has undoubtedly created strong vested interests and a reluctance to rethink existing ways of doing things.

‘I have myself witnessed repeated instances where there has been denial of responsibility, corrosive suspicion, deliberate delay and a practice of hiding behind 'values' in order to deflect or stifle criticism and protect self-interest.’

In the report published today, Lord Myners' proposals for reform include:

The creation of a new group board made up of an independent chair with no previous association or involvement with the Co-op, six to seven independent non-executive directors and two executive directors. The non-executive directors will have the skills and experience of directors sitting on the boards of the group's primary competitors.

The establishment of a National Membership Council (NMC) of about 50 individuals, including around 10 employees. The NMC will elect from its membership a steering committee of 12 which will also include representation from independent societies.

A nominations committee to screen and propose candidates for group board approval and for election and re-election by members at each AGM. The committee would comprise five non-executive members, including up to two representatives designated by the NMC.

The review will also seek to extend constitutional rights to the entire membership of the group. The ‘one member, one vote’ has been a core principle of co-operative ownership, but Lord Myners said at present ordinary members have very little power. All members will have the right to elect board members, the right to attend meetings and to approve significant transactions.

Damning review: Sir Christopher Kelly blamed the Co-op's board for failing to act as a responsible steward of the bank

Lord Myners said: ‘There is no short cut to recovery from its present weakened state. It will require retrenchment and some painful choices.

‘After 150 years of development, and an extended period of financial decline, the organisation has seen more than half of its net assets wiped out in the past five years. Financial health can only be restored through steady, step by step, rebuilding of the group's profitability and repayment of its excessive debt.’

Ursula Lidbetter, chairman of the Co-operative Group, said a resolution containing four key principles on reform will be put to members at the AGM.
She added that the board of the group has made clear its ‘commitment to far-reaching and fundamental reform of our governance’.

Ms Lidbetter said the Myners report was an invaluable contribution as the board looks to put the right changes in place: ‘As group chair, I see this as essential and urgent work that is critical to our future, enabling us to build a more effective organisation which can deliver for all our members, customers and colleagues.’

Britain's largest union Unite described the report as the ‘only game in town’, which could deliver a future for the group and its workforce.

Last month the union wrote to Co-op's regional board members on behalf of its 1,200 members urging them to back reform.

Unite national officer Adrian Jones said: ‘The current situation is unsustainable and recent events should leave people in no doubt of the need for reform to secure jobs and the Co-op Group's future.